Mumbai: Even though the Union Budget 2022-23 provided a massive push to digitization, the technology industry was disappointed by lack of clarity on the interpretation of “work from home” exemptions under section 10AA of the Income Tax Acts as well as taxation and Esop related issues of the startup ecosystem which remain unaddressed.
“There are some additional issues that we had hoped the budget would address. There is a lack of clarity on adoption of the remote working model in SEZ in the long term. This does not require amendment in the act, only a circular or clarity. There was no relaxation on the Esop tax deferment option being available only to IMB certified startups. There was no announcement on simplification of the IMB certification process,” said Ashish Aggarwal, VP and head of policy, Nasscom.
Aggarwal added that the criteria based on which a startup can obtain an IMB certification is not clear and is subjective in the hands of the recommending agencies. Further, the capping on LTCG surcharge as announced in the Budget 2022 is a welcome step; however, it falls short of addressing the real problem. Currently, LTCG arising from sale of unlisted shares are taxed at 20% for resident Indian investors and at 10% for non-resident Indian investors.
“While attracting more foreign investment has its advantages for India, an unintended consequence lies in the fact that presence of majority foreign investors makes it conducive from a regulatory perspective for the investee startup to incorporate in a foreign jurisdiction. This disparity in tax rate on resident versus non-resident investors has far-reaching consequences for the startup’s strategic decision to incorporate in India or abroad,” said Aggarwal.
In addition, technology think tank iSPIRT noted that while a large number of initiatives around 5G technology were announced, specific design linked incentives were needed.
“5G is a big opportunity. India can leverage this to become a telecom equipment provider in Radio Access Network (RAN). There should have been specific capital allocations and Design Linked Incentives (DLI) for OpenRAN as a strategic area in mission mode,” it said in a statement.
Discover the stories of your interest
The Budget announcements were otherwise met with cheer.
It introduced measures ranging from taxation to investment to help boost the country’s economic activities, digital governance, ease of doing business, ensuring job creation, and marking India’s transition to an inclusive digital economy. “Strengthening the collective vision for an inclusive Digital Bharat, the Union Budget 2022 sets the tone for India’s techade. The government’s sharp focus on technology-enabled development and aligned investments in key sectors like healthcare, fintech, education, infrastructure, R&D, startups, agriculture, and manufacturing is a testament to India’s technology prowess and the capabilities of the Indian technology industry to provide a fillip to sectors across,” said industry body Nasscom in a statement.
Extension of the tax incentive to another year and setting up an expert committee to scale VC investments will provide incremental encouragement to VC investments promoting startups in the country, it added. These steps are taken to help SMEs and startups will go a long way in strengthening the backbone of India’s economy.
Stay on top of technology and startup news that matters. Subscribe to our daily newsletter for the latest and must-read tech news, delivered straight to your inbox.